Government to crack down on loan sharks as bad debt problems soar

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The Independent Online

John Vickers, the new director general of Fair Trading, yesterday promised a crackdown on loan sharks following evidence that the number of people getting into difficulty has increased dramatically over the past two years.

John Vickers, the new director general of Fair Trading, yesterday promised a crackdown on loan sharks following evidence that the number of people getting into difficulty has increased dramatically over the past two years.

Mr Vickers said that he would be asking Trading Standards officers to make full use of powers being granted next month under a European Union directive which will allow them to act immediately to shut down rogue lenders. The new director of the Office of Fair Trading made the pledge at a debt summit of lenders and consumer groups which was convened by Kim Howells, the consumer affairs minister, in an attempt to halt what he claims was a bad debt problem that threatened to spiral out of control.

Dr Howells said that he would be launching a task force in the next few weeks to come up with a series of recommendations by early spring on how to tackle the problem.

"What we found in the room was a great degree of consensus. No one said there was not a problem. It is an extremely serious issue," said Dr Howells.

Figures released at the summit, which was attended by representatives of the National Consumers' Council, the British Banks Association, the Council of Mortgage Lenders, Which? and the British Retail Consortium, showed that the total mountain of debt including mortgages in the UK had climbed to £610bn. Of that £115bn was unsecured lending such as credit and store cards, car loans, loans for home improvement and hire purchase of household items. That figure has risen by 75 per cent over five years. The outstanding debt, including mortgages, now stands at £17,000 per person. That figure has more than doubled in the last two years.

But the real focus of concern, those attending were told, was a 50 per cent rise in two years of those seeking advice with the Citizens' Advice Bureau on bad debt problems. The total number of debt inquiries received by the CAB stands at 590,000.

Dr Howells said that the areas that the task force would be looking at included whether there was a need for new legislation to ensure consumers are given the information they need to understand what they are committing themselves to when they sign a credit agreement.

"The legislation is a quarter of a century old. It is long past the time when all of it needs to be reviewed," the minister said.

Dr Howells said he was also keen to look at issues such as the marketing of debt and how loans are packaged, and the way interest rates and credit terms generally are presented.

He said he accepted that it was paradoxical that there should be more debt problems at a time of rising prosperity. "It is very difficult to say to people that they shouldn't have credit. The last thing I want is there to be another kind of nanny state. If people feel they can cope with the level of debt - fine. But they have to know what they are letting themselves in for."

He was concerned that lenders were targeting young people with the message that thanks to instant credit you can buy whatever you desire without pointing out the fact that loans entail obligations.

He was also concerned that many lenders are happy to advance credit without even the most cursory checks as to whether the borrower can cope with the debt

Another issue that the task force would look at is whether it is legitimate for lenders to place so much emphasis on cheap introductory rates which often disguise more expensive rates later on.

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